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Housing bubble and economic theory: is mainstream theory able to explain the crisis?

  • Giancarlo Bertocco

    ()

    (Department of Economics, University of Insubria, Italy)

The current crisis in the global economy is considered on a par with the Great Depression of the 1930s. We can therefore ask whether the crisis will lead economists to revise the mainstream theory. The first result presented in this paper is to show that the traditional theory does not permit the formulation of a coherent explanation of the causes of the crisis because it uses concepts that are not coherent with the dominant theory of finance. The second result is to show that these concepts are coherent with a theory of finance that can be elaborated on the basis of the lesson of Schumpeter, Keynes and Minsky

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Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf1116.

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Length: 30 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:ins:quaeco:qf1116
Contact details of provider: Postal: Via Ravasi 2-21100 Varese
Web page: http://www.uninsubria.it/uninsubria/facolta/econo.html

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  2. L. Randall Wray, 2009. "The rise and fall of money manager capitalism: a Minskian approach," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 807-828, July.
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  8. James Crotty, 2011. "The Realism of Assumptions Does Matter: Why Keynes-Minsky Theory Must Replace Efficient Market Theory as the Guide to Financial Regulation Policy," UMASS Amherst Economics Working Papers 2011-05, University of Massachusetts Amherst, Department of Economics.
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  17. Hyman P. Minsky, 1980. "Money, Financial Markets, and the Coherence of a Market Economy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 3(1), pages 21-31, October.
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  19. Raghuram G. Rajan, 2006. "Has Finance Made the World Riskier?," European Financial Management, European Financial Management Association, vol. 12(4), pages 499-533.
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